DEFERMENT OF PAYMENT OF COSTS NOT PERMITTED: RELIEF FROM SANCTIONS REFUSED: 7 DAYS LATE WAS “SERIOUS AND SIGNIFICANT”

June 7, 2017 · by · in Applications, Costs, Relief from sanctions

In The Queen on the application of Bhandal -v- HM Revenue and Customs [2016] EWHC 3387 (Admin) Mr Justice Holroyde dismissed an application deferment of an order to pay costs and an application for relief from sanctions in making the application late.

KEY POINTS

  • A party ordered to pay costs would not be permitted to defer payment indefinitely.
  • The evidence in support of the application for time to pay was wholly inadequate.
  • Making the application 7 days late was a serious and significant breach.
  • In the absence of an explanation for the breach there could not be a finding of good reason.
  • There was nothing in the circumstances of the case that justified relief from sanctions.

THE CASE

The applicant had an order for costs made against him. There was an order that he make an application for time to pay by the 22nd August 2016. In fact the application was made on the 31st August. The applicant sought time to pay and relief from sanctions in relation to the application being made seven days later than the court order permitted. Both were refused.

THE JUDGMENT

  1. MR JUSTICE HOLROYDE: On 27 July 2016, Green J made an order for costs against the claimant and applicant, to whom I shall refer as Mr Bhandal.  That order gave Mr Bhandal liberty to apply for further time to pay the costs awarded against him.  This is the hearing of Mr Bhandal’s application for an order that payment of the costs ordered by Green J be deferred and for relief from sanction to make this present application.
  2. The respondents to the application, Messrs Wallace and Richardson, are the joint special liquidators of Irish Bank Resolution Corporation Limited (in special liquidation). I shall refer to them as “the special liquidators”.  For convenience, I shall refer to the corporation as “IBRC”.
  3. There is a very lengthy history of litigation involving Mr Bhandal, HM Revenue and Customs and its predecessor HM Customs and Excise (to both of which I shall refer for convenience as “HMRC”), and the special liquidators. For present purposes I can summarise the salient features very briefly.  In about 2000, a very substantial property in Surrey, known as Updown Court, was acquired by Heatherside Property Holdings Limited (“Heatherside”), a company registered in the British Virgin Islands.  Mr Bhandal claims that he was the beneficial owner of this property.  Heatherside borrowed sums totalling £13,650,000 from Irish Nationwide Building Society (“INBS”) in order to redevelop the property.  These loans were secured by legal charges over the property.
  4. In July 2001, HMRC suspected Mr Bhandal of fraudulently evading excise duty and value added tax in dealings with alcohol and of laundering the proceeds of his fraudulent activities. A restraint order was made against him in connection with the investigation which HMRC were then undertaking.  The restraint order was ultimately discharged on 6 April 2006, and HMRC did not bring a prosecution against Mr Bhandal. The circumstances in which the decision was taken by HMRC not to prosecute Mr Bhandal were complicated and were bound up with the events and court proceedings relating to London City Bond.  As I understand it, it has always remained HMRC’s case that Mr Bhandal was guilty of the offences of which he was suspected.  As I have said, however, there has been no prosecution.
  5. In September 2001, INBS made a formal demand for immediate repayment of the loans advanced. The total sum demanded inclusive of interest and fees was in excess of £14.5 million.  The demand was not satisfied by Heatherside.  As a result, INBS appointed an administrative receiver over the property, and in October 2002 the property was sold for an amount roughly equal to the total amount outstanding under the loans.  Mr Bhandal has always regarded that as a sale of the property at a gross undervaluation.
  6. In July 2007, Mr Bhandal issued a claim against INBS in the Chancery Division of the High Court. I shall refer to this action as “the Chancery proceedings”.  The claim was for loss which Mr Bhandal said he had suffered as a result of INBS having sold the property, of which he was beneficial owner, at an undervalue and in breach of their duty.
  7. In March 2011, Mr Bhandal issued an application in the Administrative Court against HMRC. It was an application for compensation brought pursuant to section 89 of the Criminal Justice Act 1988.  I shall refer to this as “the Administrative proceedings”.  There appears to be some uncertainty as to precisely what sum was being claimed by way of compensation.  Mr Marsh‑Finch tells me this morning that, in effect, it was a claim for the difference between what was claimed against INBS in the Chancery Division and what Mr Bhandal had, he says, lost.  It is not important for present purposes to look into that matter more closely; the important point is that in the Administrative proceedings, as in the Chancery proceedings, the basis of Mr Bhandal’s case was that he was at all material times the beneficial owner of Updown Court and that the property had been sold at an undervalue.
  8. Later in 2011 the assets and liabilities of INBS were transferred to IBRC. In February 2013, IBRC was placed into special liquidation and the special liquidators were appointed.
  9. In March 2013, Newey J gave judgment in Mr Bhandal’s favour in the Chancery proceedings for a total sum, inclusive of interest, of £113,214,374. It appears that that judgment (of which a copy has not been provided to me) was effectively in the nature of a default judgment even if not technically so.  What happened was that the joint special liquidators, who had only recently been appointed, were then of the view that there would be insufficient funds in the liquidation to pay unsecured creditors.  That being so, they took the decision that rather than incur legal costs, they would take no part in the Chancery proceedings.
  10. That judgment in Mr Bhandal’s favour has not been satisfied. Mr Bhandal has lodged a proof of debt in IBRC’s liquidation in the sum of the judgment debt, together with interest accruing thereon.
  11. On 11 March 2015, Collins J dismissed Mr Bhandal’s application in the Administrative proceedings. He concluded that Mr Bhandal did not meet the requirements for a successful claim under section 89 of the Criminal Justice Act 1988.  The learned judge went on, however, to say at paragraph 64 of his judgment that, whilst it was not therefore strictly necessary to consider whether Updown Court had been acquired from the proceeds of crime, he should deal with that issue since much argument had been directed to it and he should resolve it.
  12. Having set out the evidential matters which were relevant to that issue, the learned judge concluded at paragraph 74:
“For the reasons I have given, I am satisfied beyond any reasonable doubt, were that to be the required standard, that the claimant is guilty of the criminal conduct alleged against him and that Updown Court was acquired from the proceeds of crime. That together with the bars to success in section 89 means that this claim must be dismissed.”
Mr Marsh‑Finch helpfully tells me this morning that there is a pending appeal against the judgment of Collins J which is due for hearing in the near future.
  1. Following the judgment of Collins J, the special liquidators became concerned as to whether Mr Bhandal genuinely had been the beneficial owner of Updown Court and whether he had acquired it using the profits of legitimate business activities or from the proceeds of crime. The special liquidators have not admitted the debt lodged by Mr Bhandal in the liquidation; they wished to consider whether the judgment of Newey J (which of course founds the debt lodged in the liquidation) was regularly obtained.  Collins J’s judgment suggested to them that it had not been.
  2. The special liquidators therefore wished to see statements of evidence and exhibits which had been filed in the Chancery proceedings and the Administrative proceedings. They were not able to achieve that aim by agreement, and therefore on 9 March 2016 made an application to the High Court for an order pursuant to CPR 5.4C(2) for access to certain statements and exhibits.  On the same day Kerr J granted the application at a without‑notice hearing.  However, he stayed the order until seven days after service of it upon Mr Bhandal, and gave liberty to Mr Bhandal to apply to set it aside.
  3. Mr Bhandal issued such an application on 21 March 2016. It was listed for hearing before Green J on 27 July 2016.  At that hearing, Mr Bhandal withdrew his application.  It appears from what has been said to me by both parties this morning that he did so because it was acknowledged on his side that the application had no prospect of success.  In the result the special liquidators were permitted to inspect and/or obtain from the court file copies of the specified documents which they had sought.
  4. So far as costs are concerned, the order of Green J included the following paragraphs:
“(2) Mr Bhandal shall by 4 pm on 24 August 2016 pay the Special Liquidators’ costs of the Set‑aside Application, summarily assessed in the sum of £83,000.
 (3) Liberty to Mr Bhandal to apply on or before 4 pm on 24 August 2016 for further time to pay the costs awarded in paragraph 2 above, any such application to be supported by comprehensive statement of Mr Bhandal’s means, verified by a statement of truth signed by him and containing complete details of all and any monies and/or other assets owned by him whether directly or indirectly and whether in the UK or abroad.”
  1. In his submissions to me this morning, Mr Marsh‑Finch accepted that he had raised before Green J submissions as to deferring the time for payment of any order for costs. That, as I understand it, was in the course of submissions by both parties as to whether a costs order should be made, and as to whether it should provide for detailed or summary assessment.
  2. I have not seen a transcript of the proceedings, and of course would not in the ordinary way expect to do so, and I therefore make no concluded finding as to precisely what submissions were made before Green J, there being differing recollections as between Mr Marsh‑Finch and Mr Robins (for the special liquidators) as to the details. It does, however, seem to me to be clear that an argument was advanced before Green J to the effect that no order for costs should be made which would require Mr Bhandal to pay costs to the special liquidators before resolution of the debt which he has lodged in the liquidation.
  3. On 24 August 2016, Mr Bhandal’s solicitors filed a witness statement by Mr Bhandal dated 22 August and verified by a statement of truth. No notice of application was filed at that stage.  A week later, on 31 August, Mr Bhandal’s solicitors filed an application notice seeking the following relief:
“That the payment by the claimant of the costs ordered by Green J on 27 July 2016 be deferred for the reasons set out in the claimant’s statement of 23 August 2016, and in the meantime payment of the costs be stayed.  The claimant also seeks relief from sanctions to make this application.”
The application notice went on to say that:
“Pursuant to paragraph 3 of the Order, the claimant had liberty to apply by 24 August 2016 to defer the payment of the costs, and he is now doing so 3 days late and he applies for relief from sanctions to make this application.  The Liquidators will not suffer any prejudice by the short delay in making this application.”
  1. In his witness statement, Mr Bhandal referred to the order of Green J and said:
“[…] the learned judge made an order for costs in the sum of £83,000, and directed that I should file and serve a statement of my means within 28 days before the costs order becomes operative.  This statement is effectively a declaration of my means/my present financial position.  As will be seen below I am unable to pay the costs ordered by Green J.”
  1. Mr Bhandal went on to speak of his “very precarious and difficult financial position” saying that he has “no means to speak of at my disposal”. He said that he had no income and no assets other than the judgment in his favour.  He said he had only been able to fund the costs of litigation by a combination of conditional fee agreements with his solicitors and loans from family and friends to pay counsel’s fees.  In paragraph 13 of the statement, he said:
“My monthly outgoings including rent, food and utilities and other routine expenses amount to £6,500.  This sum is given to me each month by way of a loan by a close family friend.  He has supported me throughout the INBS/IBRC proceedings.  It is not clear how much longer he can continue to support me financially.”
He summarised his debts by saying that he owes HMRC about £350,000; owes his solicitors and counsel about £55,000; and owes “friends and family c£1.2 million.”
  1. Mr Bhandal concluded the witness statement by asking the court to “deal with the costs order” by deferring payment of the costs order of £83,000 until after the special liquidators had decided whether or not they will seek to set aside the judgment in the Chancery proceedings. He contended that, if an application to set that judgment aside is made, these costs should then be further deferred until the application has been determined and “the position reconsidered at that time”.  If, on the other hand, the special liquidators decide not to make any such application, he contends that the costs order should be deferred “until a decision is made as to whether or not I am to be admitted as an unsecured creditor in the liquidation.  Once a decision is made the payment of costs order can then be reconsidered.”  He submitted that such an order would cause no prejudice to the special liquidators, whereas enforcement of the costs order against him would be very substantially prejudicial “and possibly irreparable”.
  2. This application is resisted by the special liquidators. On their behalf, Mr Robins submits that there is no basis for the court to give relief from sanction and that in any event the terms of Green J’s order have not been complied with and that there is no basis on which to defer the order for payment of costs.
  3. I think it convenient to deal first with the issues raised by the submissions of both counsel other than the issue of relief from sanctions. I have quoted the terms in which the present application notice is expressed.  It is, in my view, very doubtful whether this application for “deferment” of the costs order can properly be described as an application “for further time to pay the costs awarded” against Mr Bhandal.  On this issue, Mr Robins points out that the time allowed for payment of the costs by the order of Green J was 28 days and thus twice as long as the normal period provided for in CPR 40.11 and 44.7.  Mr Robins submits that an order in those terms was made by Green J after there had been brought to his attention the submissions made by Mr Marsh‑Finch as to the unfairness of ordering costs against Mr Bhandal at a time when the special liquidators are, as Mr Marsh‑Finch would submit, dragging their heels in deciding whether to admit the debt which he has proved in the liquidation.  In those circumstances, Mr Robins submits that the terms of paragraph 3 of Green J’s order cannot be interpreted as granting a general permission for Mr Bhandal to rerun matters of that nature at this hearing.
  4. In my judgment, that submission is correct. An order providing that an application may be made seeking further time to pay would, in the ordinary way, simply contemplate that the court would be asked to extend by a specified period the time which had been limited by the first order for payment.  There is nothing before me in the present application which suggests to me that anything different was intended by the order of Green J.
  5. In any event, it seems to me that Mr Bhandal’s statement dated 22 August cannot possibly be regarded as “a comprehensive statement” of his means as was required of him by Green J’s order. The statement consists of nothing more than bare assertions of impecuniosity and vague reference to a number of loans from unnamed friends and family.  Mr Marsh‑Finch says, and it is a valid point, that it is difficult to prove a negative.  But even if that be a sufficient explanation of the bare statement that Mr Bhandal has no funds, it does not explain at all the failure to give proper detail of the debts which Mr Bhandal says he owes.  By way of example, no explanation is given as to why, if he is a man with no income who has been sharing a flat with his elderly parents, Mr Bhandal has been incurring monthly living expenses of £6,500.  No details are given of any of these suggested loans.  The court has no information at all as to who advanced them, when they were advanced, in what amount or on what terms.
  6. This plainly is not a comprehensive statement as the order requires. Indeed, in recent correspondence Mr Bhandal’s solicitors have accepted that Mr Bhandal could list his creditors, albeit that they would seek to add the qualification “subject to their consent”.  Moreover, it seems clear that there certainly was a time when Mr Bhandal was a man who lived an affluent lifestyle.  The statement is silent as to how it comes about that he now puts himself forward as a man with no assets at all other than the judgment in his favour in the Chancery proceedings.
  7. Moreover, it seems to me that Mr Bhandal’s statement is not, in reality, seeking further time to pay the costs. It seems to me that he is seeking to defer the time at which he will be required to pay, with a view to making some as yet unspecified request for the court to “reconsider” the costs order at a future date.  If that is an indirect attempt to set up a future form of appeal against the order of Green J, then it is plainly impermissible. 
  8. Mr Marsh‑Finch argues vigorously that there is here a most unjust state of affairs. He says that Mr Bhandal is, and is known by the special liquidators to be, an impecunious man.  Mr Bhandal has, however, a valid judgment in his favour for an enormous sum of money.  Mr Marsh‑Finch complains that the liquidators are most unfairly keeping Mr Bhandal in a state of limbo by failing to make any application to set aside the judgment in the Chancery proceedings or otherwise to indicate what action they propose to take or to indicate that they will admit the debt lodged by Mr Bhandal.  They leave him without any of the funds to which he should have access.
  9. In response to this, Mr Robins submits that the joint special liquidators have been acting with all reasonable speed since they learned of the judgment of Collins J. They endeavoured to gain access by agreement to the evidence which is of obvious interest to them.  Mr Bhandal declined to agree to their doing so.  He resisted their attempts.  He brought an application which occupied some months before it came on for hearing, at which point it was promptly withdrawn.  Thus the submission on behalf of the special liquidators is that, if there has been any delay, it is the fault of Mr Bhandal.
  10. Mr Robins submits to me that, in reality, the evidence before the court is to the effect that Mr Bhandal is unable to pay the costs; it is not to the effect that he will be able to pay the costs within a reasonable time. Mr Robins argues that Mr Bhandal’s case amounts to this: that he will only ever be able to pay the costs if he is able to show that the judgment of Newey J was regularly obtained and so secure the debt being admitted in the liquidation.  Mr Robins submits that that is at best a speculative prospect which will take a considerable time to resolve.
  11. I accept Mr Robins’ submissions on this point. Taking the statement, inadequate as it is, at face value, it is a statement that Mr Bhandal is unable to pay the costs and will remain unable to pay them for a substantial period of time.  Mr Robins drew to my attention the decision of Field J in Gulf International Bank v Al Ittefaq Steel Products Co & Ors [2010] EWHC 2601 (QB).  He relied on that decision and on the cases cited in it to support his submission that further time to pay a costs order should only be granted if the applicant is able to show by evidence that he would be able to pay within a reasonable time if he was granted some indulgence.  Again, I accept the submission.  Mr Bhandal does not put himself forward as a man who would be able to pay the costs order within a reasonable time.
  12. In those circumstances, it seems to me that Mr Bhandal has not complied with the order of Green J and has not been able to put before the court any grounds for granting the requested “deferment” of the order for costs.
  13. I turn finally and briefly to the application for relief from sanctions made pursuant to CPR 3.9. The principles on which the court should act when considering such an application were set out by the Court of Appeal in Denton v TH White Ltd [2014] 1 WLR 3296.  The court should approach the matter in three stages.
  14. First, I must consider whether the breach of Green J’s order was serious and significant. Mr Marsh‑Finch submits in effect that it was not; it was a delay of seven days in lodging the formal notice of application, which caused no prejudice because the witness statement had been lodged within time. 
  15. I do not accept that submission. In my judgment, it was a serious and significant breach.  Mr Bhandal, his counsel and his solicitors were all in court when the order was made.  The order was entirely clear in its terms.  It ordered Mr Bhandal to pay the costs by the specified date.  It went on to permit him to make an application before that date was reached for further time to pay.  It did not, as Mr Bhandal wrongly suggests in his witness statement, say that he should file and serve a statement of means within 28 days “before the costs order becomes operative“.  I do not know whether any submission was made to Green J to the effect that the period of 28 days would be insufficient.  If it was, it is unsurprising that the order was nonetheless made in the terms I have quoted.  28 days is plainly a sufficient period for a comprehensive statement to be provided.  No application was, however, made within that period.  The witness statement, which was itself lodged in time, was not an application and cannot be treated as such.  The application was made seven days late, not three days late as was claimed by Mr Bhandal’s solicitors.  Given the context of the application, and given that Mr Bhandal had been ordered to pay a substantial sum by way of costs, I am unable to regard it as anything other than a serious and substantial breach. 
  16. As to the second stage of the inquiry, the position is simply this: that no explanation at all has been given for the failure to issue a notice of application within the time stipulated by Green J’s order. Mr Marsh‑Finch tells me today that there was an oversight, but with all respect to his submission there is no evidence to that effect.  If there was an oversight, some explanation should have been given for it; none has.
  17. As to the third stage of the inquiry, namely an evaluation of all the circumstances of the case, it is, in my view, relevant to remind oneself that the order for costs was made in relation to an application which Mr Bhandal had made, had pursued over a period of some months and had then withdrawn, by inference because it was without foundation.
  18. In all those circumstances, I conclude that there would in any event have being no ground for granting relief from sanction.
  19. For those reasons, these applications fail and are dismissed.
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